I'm Swiss-born, served as a Marine jet attack aviator in the Korean and pre-Vietnam era. I received an MBA from UC Berkeley in 1962, with highest honors. I've held top management positions at GM, BMW, Ford, Chrysler and retired from GM as Vice Chairman in 2010 at age 78. My two successful books are "Guts: The Seven Laws of Business That Made Chrysler The World's Hottest Car Company" (Jonn Wiley+Son, 1998) and, more recently, "Car Guys vs. Bean Counters: The Battle For The Soul Of American Business" (Portfolio Press, 2010) Most current book "Icons and Idiots" (Portfolio Press, 2012). I'm a contributor for Road & Track Magazine along with CNBC, and appear with some frequency on "Larry Kudlow." I serve on numerous startup boards, am a Leigh Bureau professional lecturer and provide consulting services to a number of clients. I tend to have strong opinions which I share with enthusiasm ... some would say "to a fault." My personal motto is "Often wrong, but seldom in doubt." For more information, visit my website, boblutzsez.com.

The Real Story On GM's Volt Costs

I was surprised to read Ben Klayman’s piece on alleged astronomical per-unit losses on the Chevrolet “Volt.” Ben is usually a solid professional who checks his facts.

The statement that GM “loses” over $40K per Volt is preposterous. What the “analyst” in whom poor Ben Klayman placed his faith has done is to divide the total development cost and plant investment by the number of Volts produced thus far. That’s like saying that a real estate company that puts up a $10 million building and has rental income of one million the first year is “losing” 9 million dollars, or several hundred thousand per renter.

Listen, Ben and Micheline: that’s not how car business cost accounting works.

Let me provide a look at how a car company tracks profitability of a product program: measured are material cost and labor, and these are deducted from the selling price. The positive difference is called “gross margin.” Then, one allocates per-unit “fixed cost” (advertising, general overhead, etc.) plus per-unit depreciation and amortization of the initial investment, based on the TOTAL NUMBER TO BE PRODUCED OVER THE LIFETIME of the product. If the margin, after all deductions, is still positive, then we call it a “fully accounted profit,” and the car is a winner.

The Volt “variable cost” (labor and materials, without revealing any confidential GM information), looks very roughly like this: A Li-Ion battery today runs about $350 per KWh. The Volt’s is 16KWh, so that’s roughly $6000. Add $4,000 for the battery pack structure, the cooling, the high-voltage wiring, the motor and the power electronics. So, that’s the electric portion. Add about 20 hours of assembly labor which we’ll round to a very generous $1000. The dealer net price is, say, $37,000. We now have $26,000 left for the rest of the car, which, cost-wise, is about equal to a Chevy “Cruze” which sells for around $22,000 retail! (And the Volt has no costly conventional transmission.) Thus, the “Volt”, by my estimate, is either close to “variable break-even” or may be on the cusp of a positive gross margin. Deduct the per-unit allocation for all fixed cost, depreciation and amortization and it is, surely, still “under water”….but not by much, and less and less so as the volume builds and other, higher-margin GM cars, like the Cadillac ELR, piggy-back off of the Volt’s initial investment.

Maybe the Volt, a first-generation technology masterpiece and the most-awarded car in automotive history, will never make a really decent profit.

But succeeding generations of the same technology will. Meanwhile, the happy Volt buyers (most satisfied owners of any nameplate in the market) are getting more that they paid for. (Is that so bad?)

We won’t even factor in the profound halo effect the introduction of the Volt has had on GM’s reputation as a leader in environmental automotive technology; it’s priceless, and could never have been achieved without it.

So, once again, the knee-jerk Volt bashers, devoid of any real knowledge, have had their usual joyous verbal catharsis, but the car doesn’t care: The volumes are building globally and it’s doing exactly what it was designed to do.

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It amazes me that people still buy GM cars. Doesn’t anyone remember the Cadillac Cimarron? Or that Cadillac that with an engine that was supposed to switch between 8, 6, and 4 cylinders depend on the amount of power needed (never, ever came close to working correctly).

Personally, I have always thought that the best car made in a socialist country was the Russian Lada. GM is a distant second.

Really? You’re going to spec out the Volt against two cherry-picked vehicles that GM produced roughly 3 DECADES AGO?

I’ll be the first to admit that I was not a fan of American made vehicles until recently. I wanted to be patriotic and support an American car company, but hadn’t been impressed until someone I work with brought home one of the first new Camaros available a couple years ago. Being a MASTER Automotive Technician certified individual, and MASTER Engine Machinist, I can spot varying levels of build quality. The Camaro was impressive. I came close to purchasing a Nissan Leaf, and fortunately had checked out the Volt last, which sealed the deal. There is no question that the product that GM is putting out today is definitely the American Car Company that Americans can be proud of.

And then you’re going to insinuate that the sitting President is entirely responsible for making GM some sort of Communist/Solcialist Government RUN entity? Comments like this are so sad, its not even funny anymore.

Come off it Bob! “Meanwhile, the happy Volt buyers (most satisfied owners of any nameplate in the market) are getting more that they paid for. (Is that so bad?)” Yes, it’s really, really bad for those of us who recognize that the Volt (or it’s putative successors) will never, ever, achieve the volume you anticipate and deeply resent the subsidy that we are providing for those, very few, owners who have been bribed to drive one.

Can I hold that crystal ball that you’ve got there? Or are you simply ignoring the legitimate math that this article explains so that you can justify hating on something that you heard is associated with Obama, who simply completed a transaction that a Republican President initiated?

Conservatives knock the Volt because it’s a pet project of the administration and big labor. Liberals support the car because they support Obama. The only critics that are important are the car-savvy consumers, who, even though the Volt is heavily supported by taxpayer funded incentives, are avoiding this car big time. If it was such a great car it would be selling without incentives. As it is, the plant is being shut down (at least for now) due to lack of consumer demand.

If the Volt was selling well, they wouldn’t be shutting down the plant to re-tool for any other car. If they needed to re-tool for another vehicle they would close the plant of a car not selling very well. In spite of your hipster dufus catchphrases, you’re way off base. But thanks for playing.

Your comment gets to the crux of the perception problem of the Volt. The Volt was conceived of by a hard core conservative (the author of this article) and Lauckner in response to the Tesla Roadster. Despite the tax credit for EV’s being passed by Bush and despite the GM bailout starting under Bush, conservatives have decided to label the Volt as a “liberal” car (whatever that is) and have chosen to tie it to Obama. Now the Prius PiP, the Nissan Leaf, the Mistubishi i-Miev, Ford EV Focus all qualify for the tax credit and yet the conservative media’s hive mentality has singled out the Volt for their scorn.

The result is that people like you that (probably) mostly only listen/watch conservative media get a really warped sense of what the Volt is. There are still tons of conservatives out there that think the Volt is a fire hazard (it’s not), or that it subsidized to the tune of $250,000 per car (it’s not) or that it strands it’s drivers after 40 miles (it doesn’t) or that it loses $40,000 per car built (it doesn’t).

What it is is an awesome piece of American engineering/technology that makes me proud to own it and it puts a smile on my face literally every time I get in and drive it. Yes, it’s that good. I just wish that the conservative war on the Volt would end because it really makes us conservatives look stupid when we spout off utter nonsense when it comes to the Volt.

I would suggest keeping your troll comments vague: when you start to say things like “they wouldn’t be shutting down the plan to re-tool for any other car”, you’re just showing that you don’t have a clue as to how the automotive industry works, or how GM and every other company shuts down to re-tool on a fairly regular basis. It has nothing to do with the sales figures. And if you’re still arguing with Bob Lutz, you’re really tilting at windmills.